Annual Financial Report

British Smaller Companies VCT2 plc

Annual Financial Report Announcement

for the year ended 31 December 2024

British Smaller Companies VCT2 plc (the "Company") today announces its audited results for the year ended 31 December 2024.

HIGHLIGHTS

Chair's Statement

I am pleased to present the 2024 annual report and financial statements of British Smaller Companies VCT2 plc ("the Company"), my first as Chair of the Company. It has been a year of steady progress for the Company, with some macroeconomic challenges, but with positivity from lowering inflation and interest rates.

The year saw a change in UK government; this has brought political stability, which should be a positive for long term investment. Additionally, as inflation has come under control and towards the Bank of England's 2 per cent target, so interest rates have been lowered, from 5.25 per cent to 4.5 per cent today.

However, the more disruptive political environment in the US, accompanied by the threat of tariffs, as well as continued cost pressures for companies to absorb such as the increase in employers NI, has meant it remains a challenging environment for portfolio companies to operate in.

Through this period, it was pleasing to see the positive performance of the Company, which generated a 1.3 per cent return on its opening net asset value in the year.

There have been increases in several assets within the portfolio during the year, with over 50 per cent of the portfolio by value seeing increases in annual recurring revenue of 25 per cent or higher. This growth is beginning to register in the portfolio's value, with 25 companies showing valuation uplifts in the period. 

That said, overall performance has been dampened by the reduction in value of a small number of portfolio companies, where specific circumstances have held back their growth. The Company's Manager, YFM Private Equity Limited, continues to work closely with these companies to navigate these current challenges.

Pleasingly, as well as adding four new companies to the portfolio in the year, the Company has had the opportunity to provide £9.4 million of further funding to ten existing portfolio companies, with the vast majority of this being deployed into the fastest growing companies to help accelerate their impressive growth.

From an exit perspective, the Company has continued to realise investments this year despite a subdued M&A environment, recognising £9.4 million of proceeds from two partial exits, two full realisations and deferred consideration.

Financial Performance

In 2024, the Company delivered a 0.80 pence per ordinary share increase in Total Return, equivalent to 1.3 per cent of the opening net asset value at 31 December 2023. Total Return is now 146.35 pence per ordinary share.

This was driven by value growth in the portfolio, which generated a return of £2.9 million, 3.1 per cent over its opening value. New and follow-on investments totalling £15.1 million were completed.

New Investments

The Company invested £5.7 million into four new investments during the year

Investment Sector

Fuuse Electric vehicle charge point management system

Spotless Water Ultra-pure water distribution network

Ohalo Unstructured data governance platform

Integrum ESG A specialist ESG ratings and analytics platform

Post-year-end, in January 2025, the Company invested £1.4 million into new investment Stormharvester, an AI analytics platform for wastewater utilities.

Follow-On Investments in the Year

In our continued support of the portfolio, ten companies received follow-on funding, totalling £9.4 million in aggregate. Further details are given in the Investment Review below.

Post-year-end, in March 2025 the Company invested 2.8 million into portfolio companies DrDoctor and Vypr.

Realisations in the Year

Realisations of portfolio investments generated total proceeds of £9.4 million, generating a gain of £7.3 million over the original cost and £0.2 million over the opening carrying value.

KeTech, a provider of communications systems, was separated into its two component parts (Rail and Defence) in 2023 to maximise shareholder value. In January 2024, the Defence business was sold, generating proceeds of £1.5 million. To date, the Company has realised proceeds of £4.1 million from its KeTech investment, a 2.0x return on cost, while still retaining its investment in the Rail business, which at the year-end was valued at £1.3 million.

In January 2024 the Company realised part of its investment in Arcus, generating proceeds of £0.2 million, while still retaining its investment in the remaining restructured business; at year-end this was valued at £0.9 million. The combined £1.2 million of value to date equates to 0.6x cost.

In February 2024, the Company sold its investment in Displayplan for £4.8 million. Total proceeds received over the life of the investment are £6.7 million, an excellent 9.6x return on the Company's cost.

In October 2024, the Company sold its investment in Traveltek for £2.5 million. Total proceeds recognised over the life of the investment are £3.3 million, a 2.8x return on the Company's cost. There is the potential for further deferred proceeds in due course, with £0.6 million of deferred proceeds recognised at the year-end.

In the year the Company also received deferred consideration of £0.4 million relating to investments realised in prior years.

Subsequent to the year-end, in February 2025 the Company realised its investment in ACC Aviation, receiving £3.1 million in initial proceeds, with additional deferred consideration of £1.5 million anticipated to be received over the next two to four years. Including the deferred consideration, the ACC investment has generated an overall return of £8.2 million, a 5.9x return on the original cost of £1.4 million.

Treasury

Due to the nature of its structure, a proportion of the Company's net assets will be held in cash and cash equivalents at any point in time. As interest rates have remained at higher than historical levels, the Company has taken an active approach to generating a good return on liquid funds, whilst remaining focused on the primary goal of capital preservation.

A portion of the Company's liquid assets are held across a diversified range of Triple-A rated money market funds, managed by global institutions, while the balance is held as readily accessible cash, all of which is held at Tier 1 Financial Institutions (A2 rated or above).

In the year, the Company generated a return of £2.7 million on its liquid assets, and at year-end was generating a weighted run-rate return on these assets of around 4.5 per cent per annum.

Financial Results

The movement in net asset value ("NAV") per ordinary share and the dividends paid are set out in the table below:



The charts on page 12 of the annual report show the movement in Total Return and net asset value over time in greater detail.

The investments held at the beginning of the financial year, amounting to £96.4 million, delivered a return over the year of £2.9 million.

The current portfolio's net valuation increased by £3.1 million. Within this there were valuation gains of £11.5 million, offset by £8.4 million of downward movements.

Following the portfolio's evolution towards younger, higher growth companies after changes to VCT regulations in 2015, as expected the level of income generated by the portfolio continues to decrease. Overall, £0.6 million was recognised in the year, down from £0.7 million in 2023.

Dividends

Dividends paid in the year totalled 3.00 pence per ordinary share. These comprised two 1.50 pence per ordinary share interim dividends. Cumulative dividends paid as at 31 December 2024 were 89.25 pence per ordinary share.

Following the successful realisation of Traveltek in October 2024, a special dividend of 1.00 pence per ordinary share for the year ending 31 December 2025 was paid on 27 January 2025 to shareholders on the register at 27 December 2024, taking cumulative dividends paid to date to 90.25 pence per ordinary share.

Dividend Re-investment Scheme ("DRIS")

The Company operates a DRIS, which gives shareholders the opportunity to re-invest any cash dividends; it is open to all shareholders, including those who invested under the recent offers. The main advantages of the DRIS are:

1 the dividends remain tax free; and

2 any DRIS investment attracts income tax relief at the rate of 30 per cent.

For the financial year ended 31 December 2024, £1.4 million was re-invested by way of the DRIS, from overall dividend proceeds of £8.5 million.

Liquidity and Fundraising

The Company completed a successful fundraise during the year, allotting £34.5 million relating to the 2023/24 tax year.

At 31 December 2024, the Company's cash and money market reserves of £53.1 million represented 33.1 per cent of net assets.

Post-period end, in January 2025, a further £9.8 million of shares were allotted, relating to the 2024/25 tax year. It is expected that a further c.£19.2 million will be allotted in early April 2025, following the close of the Company's joint share offer alongside British Smaller Companies VCT plc on 8 January 2025.

Distributable Reserves

In December 2024, the Company cancelled the balance of its share premium account and its capital redemption reserve; and reduced the nominal value of its issued share capital. These actions will create additional distributable reserves for the Company, providing greater flexibility for the buy-back of shares, payment of dividends and other corporate purposes. As a result of these actions, £85.3 million of additional distributable reserves will be created over the next three years. There was no dilution to shareholders' interests.

Board Changes

On 13 June 2024, Peter Waller retired as Chair and stood down from the Board. The Board and the Manager thank Peter for all of his efforts and valuable contributions over the course of his tenure.

Also on 13 June 2024, Arif Ahmed joined the Board. Arif is a serial entrepreneur and private equity investor with particular expertise in healthcare and technology.

Investor Workshop

The annual shareholder workshop held on 20 June 2024 was well attended. Attendees heard from Steve Frost, CEO of Workbuzz, and Scott Morris, Managing Director of Displayplan.

We are pleased to announce that the next in-person shareholder workshop will be held jointly with British Smaller Companies VCT plc on 19 June 2025 at 30 Euston Square, London NW1 2FB.

Shareholder Relations

Annual General Meeting

The Annual General Meeting of the Company will be held at 9:30 am on 12 June 2025 at Thomas House, 84 Ecclestone Square, London SW1V 1PX. Full details of the agenda for this meeting are included in the Notice of the Annual General Meeting on page 88 of the annual report.

The electronic communications policy continues to be a success, with 83 per cent of shareholders now receiving communications in this way. Documents such as the annual report are published on the website www.bscfunds.com rather than by post, saving on printing costs, as well as being more environmentally friendly.

The Company's website, www.bscfunds.com, is refreshed on a regular basis and provides a comprehensive level of information in what I hope is a user-friendly format.

General Meeting

The Company held a general meeting on 12 November 2024 at which special resolutions were passed relating to the cancellation of the Company's share premium account and capital redemption reserve, and the reduction in the nominal value of the Company's issued share capital.

Post Balance Sheet Events

Subsequent to the year end, the Company invested £1.4 million into one new investment, Stormharvester, and 2.8 million into portfolio companies DrDoctor and Vypr. The Company also received £3.1 million from the realisation of ACC Aviation, as detailed above.

On 27 January 2025 the Company issued 831,686 ordinary shares pursuant to its Dividend Re-investment Scheme, following the special dividend of 1.00 pence paid that day. On 30 January 2025 the Company issued 17,313,531 shares in relation to the 2024/25 fundraising, raising gross proceeds of £9.8 million. Following these allotments, the Company's issued share capital consists of 299,176,349 ordinary shares with voting rights and 28,770,963 shares held in treasury.

Outlook

During 2024 the Company saw good levels of underlying revenue growth from much of its existing portfolio, and took the opportunity to deploy further capital into many of these companies to further accelerate their growth. The Manager is working closely with the portfolio companies which saw decreases in their value to navigate their particular challenges. It is hoped that these positions will stabilise or improve in 2025, while the remainder of the portfolio continues its growth, driving the Company's performance.

Macroeconomic conditions will continue to be closely monitored, with the effects of possible US tariffs and retaliatory responses from impacted nations having the potential to disrupt markets and growth in the year. However, portfolio companies have proven themselves to be resilient to the challenges presented in recent years, and with the support of the Manager we remain optimistic that they can navigate any emerging headwinds.

The Company's 2024/25 fundraising puts it in a strong position to continue to support the portfolio's growth, as well as adding new businesses through the coming year. I thank shareholders for their continued support.

Barbara Anderson

Chair

18 March 2025

Objectives and Key Policies

The Company's objective is to maximise Total Return and provide investors with a long-term tax free dividend yield whilst maintaining the Company's status as a venture capital trust.

Investment Strategy

The Company seeks to build a broad portfolio of investments in early-stage companies focused on growth, with the aim of spreading the maturity profiles and maximising return, as well as ensuring compliance with VCT regulations.

The Company predominantly invests in unquoted smaller companies and expects that this will continue to make up the significant majority of the portfolio. It will also retain holdings in cash or near-cash investments to provide a reserve of liquidity which will maximise the Company's flexibility as to the timing of investment acquisitions and disposals, dividend payments and share buy-backs.

Unquoted investments are structured using various investment instruments, including ordinary shares, preference shares, convertible securities and very occasionally loan stock, to achieve an appropriate balance of income and capital growth, having regard to the VCT Regulations. The portfolio is diversified by investing in a broad range of industry sectors. The normal investment period into the portfolio companies is expected to be typically between the range of five to seven years.

Investment Policy

The investment policy of the Company is to invest in UK businesses across a broad range of sectors that blends a mix of businesses operating in established and emerging industries that offer opportunities in the application and development of innovation in their products and services.

These investments will all meet the definition of a Qualifying Investment and be primarily in unquoted UK companies. It is anticipated that the majority of these will be re-investing their profits for growth and the investments will comprise mainly equity instruments.

The Company seeks to build a broad portfolio of investments in early-stage companies focused on growth with the aim of spreading the maturity profiles and maximising return as well as ensuring compliance with the VCT guidelines.

Borrowing

The Company does not borrow and has no borrowing facilities, choosing to fund investments from its own resources.

Co-investment

British Smaller Companies VCT plc and British Smaller Companies VCT2 plc (together "the VCTs") typically co-invest in investments, allocating such investments 40 per cent to the Company and 60 per cent to British Smaller Companies VCT plc. However, the Board of the Company has discretion as to whether or not to take up its allocation; where British Smaller Companies VCT plc does not take its allocation, the Board may opt to increase the Company's allocation in such opportunities.

The VCTs may invest alongside co-investment funds managed by YFM, the Manager of the VCTs. The VCTs have first priority on all equity investment opportunities meeting the VCT qualifying criteria. Non-VCT qualifying investments are allocated to YFM's co-investment funds.

Asset Mix

Cash which is pending investment in VCT-qualifying securities is held in money market funds and interest bearing instant access and short-notice bank accounts.

Remuneration Policy

The Company's policy on the remuneration of its directors, all of whom are non-executive, can be found on page 49 of the annual report.

Other Key Policies

Details of the Company's policies on the payment of dividends, the DRIS and the buy-back of shares are given on page 2 of the annual report. In addition to these the Company's anti-bribery and environmental and social responsibilities policies can be found below under the heading "Business Conduct". 

Processes and Operations

The Manager is responsible for the sourcing and screening of investment opportunities, carrying out suitable due diligence investigations and making submissions to the Board regarding potential investments.

Post investment, the Manager works with the businesses and management teams in which the Company is invested, monitoring progress, effecting change and, where applicable, redefining strategies with a view to maximising values through structured exit processes.

The Board regularly monitors the performance of the portfolio and the investment requirements set by the relevant VCT legislation. Reports are received from the Manager regarding the trading and financial position of each investee company and senior members of the Manager regularly attend the Company's Board meetings. Monitoring reports on compliance with VCT regulations are also received at each Board meeting so that the Board can monitor that the Venture Capital Trust status of the Company is maintained and take corrective action if appropriate. Monitoring reports carrying out an independent review of this compliance are received twice a year.

The Board reviews the terms of YFM Private Equity Limited's appointment as Manager on a regular basis.

YFM Private Equity Limited has performed investment advisory or management, administrative and secretarial services for the Company since its inception on 28 November 2000. The principal terms of the agreement under which these services are performed are set out in note 3 to the financial statements.

In the opinion of the directors, the continuing appointment of YFM Private Equity Limited as Manager is in the interests of the shareholders as a whole, in view of its experience in managing venture capital trusts and in making, managing and exiting investments of the nature falling within the Company's investment policies.

Key Performance Indicators

Total Return, calculated by reference to the cumulative dividends paid plus net asset value (excluding tax reliefs received by shareholders), is the primary measure of performance in the VCT industry. Further explanation is given under the heading "Financial Performance" above. All returns are shown as pence per share ("pps").

The chart on page 12 of the annual report shows how the Total Return of the Company has developed over the last ten years.

The evaluation of comparative success of the Company's Total Return is by way of reference to the Share Price Total Return for an index of VCTs that are members of the AIC (based on figures provided by Morningstar). This is the Company's stated benchmark index. A comparison and explanation of the calculation of this return is shown in the Directors' Remuneration Report on page 51 of the annual report.

The chart on page 12 of the annual report illustrates the Total Return (excluding tax reliefs received by shareholders) for investors who subscribed to the first fundraising in 2000/01 who have re-invested their dividends.

Shareholder Returns

The Board considers Total Return to be the primary measure of shareholder value. The Internal Rate of Return (the "IRR") from the offers over the last ten years are shown below. IRR, which is an Alternative Performance Measure, is a key metric used to assess the potential profitability of an investment, a higher IRR indicates a more profitable investment. More specifically, IRR is the annual rate of return that equates the cost at the date of the original investment, with the value of subsequent dividends plus the audited 31 December 2024 net asset value. This excludes the benefit of any initial tax relief.

The IRRs shown are based on fundraisings and offer prices during the relevant calendar year whilst the table shows specific financial periods to 31 December 2024. Note there was no fundraising in 2020 and it is too soon to give meaningful returns for the fundraisings in 2023 and 2024.

Set out below is the annualised return over 10, 5, 3 and 1 years to 31 December 2024. The annualised return is calculated with reference to the cumulative dividends paid in the period plus the audited 31 December 2024 net asset value, compared to the net asset value at the beginning of the relevant period.

Expenses

Ongoing Charges

The Ongoing Charges figure, as calculated in line with the AIC recommended methodology, is used by the Board to monitor expenses. This figure shows shareholders the costs of the Company's recurring operational expenses, expressed as a percentage of the average net asset value. Whilst based on historical information, this provides an indication of the likely level of costs that will be incurred in managing the Company in the future.

* Alternative Performance Measure

Shareholders also benefit from the Company's agreement with the Manager to pay a lower level of management fee of 1 per cent on surplus cash. The Company's ongoing charges ratio is one of the lowest in the VCT industry.

Expenses Cap

The total costs incurred by the Company in the year (excluding any performance related fees, trail commission payable to financial intermediaries and VAT) is capped at 2.9 per cent of the total net asset value as at the relevant year end. The treatment of costs in excess of the cap is described in note 3. There was no breach of the expenses cap in the current or prior year.

Compliance with VCT Legislative Tests

A principal risk facing the Company is the retention of its VCT qualifying status. The Board receives regular reports on compliance with the VCT legislative tests from the Manager. In addition, the Board receives formal reports from its VCT Tax Adviser (Philip Hare & Associates LLP) twice a year. The Board confirms that during the period, all VCT legislative tests have been met.

Under Chapter 3 Part 6 of the Income Tax Act 2007, in addition to the requirement for a VCT's ordinary share capital to be listed in the Official List on a European regulated market throughout the period, there are further specific tests that VCTs must meet following the initial three year provisional period.

Income Test

The Company's income in the period must be derived wholly or mainly (70 per cent) from shares or securities.

Retained Income Test

The Company must not retain more than 15 per cent of its income from shares and securities.

Qualifying Investments Test

At least 80 per cent by value of the Company's investments must be represented throughout the period by shares or securities comprised in Qualifying Investments of investee companies.

For shares issued in accounting periods beginning on or after 6 April 2018, at least 30 per cent of those share issues must be invested in Qualifying Investments of investee companies by the anniversary of the accounting period in which those shares are issued.

Eligible Shares Test

At least 70 per cent of the Company's Qualifying Investments must be represented throughout the period by holdings of non-preferential shares.

Investments made before 6 April 2018 from funds raised before 6 April 2011 are excluded from this requirement.

At least 10 per cent of the Company's total investment in each Qualifying Investment must be in eligible shares.

In addition, monies are not permitted to be used to finance buy-outs or otherwise to acquire existing businesses or shares.

Investment Limits

There is an annual limit for each investee company which provides that they may not raise more than £5 million of state aided investment (including from VCTs) in the 12 months ending on the date of each investment (£10 million for Knowledge Intensive Companies).

There is also a lifetime limit that a business may not raise more than £12 million of state aided investment (including from VCTs); the limit for Knowledge Intensive Companies is £20 million.

Maximum Single Investment Test

The value of any one investment must not, at any time in the period, represent more than 15 per cent of the Company's total investment value. This is calculated at the time of investment and updated should there be further additions; as such, it cannot be breached passively.

The Board can confirm that during the period, all of the VCT legislative tests set out above have been met, where required.

Further restrictions placed on VCTs are:

Dividends from Cancelled Share Premium

The Finance Act 2014 introduced a restriction with respect to the use of monies in respect of VCTs. In particular, no dividends can be paid out of share capital or cancelled share premium arising from shares allotted on or after 6 April 2014 until at least three full financial years have elapsed from the date of allotment.

In December 2024 the Company cancelled the balance of its Share Premium and Capital Redemption Reserve of £54.3 million, of which £0.1 million is now distributable. The remaining £54.2 million will become distributable over the period to 1 January 2028, as set out below.

Also in December 2024, the Company reduced the nominal value of the share capital of the Company from 10 pence per ordinary share to 0.01 pence per ordinary share, creating additional distributable reserves of £30.9 million, of which £15.8 million is now distributable. The remaining £15.1 million will become distributable over the period to 1 January 2028, as set out on page 63 of the annual report.

Other

No more than seven years can have elapsed since the first commercial sale achieved by the business (ten years in the case of a Knowledge Intensive Company), unless:

a. The business has previously received an investment from a source that has received state aid; or

b. The investment comprises more than 50 per cent of the average of the previous five years' turnover and the funds are to be used in the business to fund growth into new product markets and/or new geographies.

Wherever possible, the Company self-assures that an investment is a Qualifying Investment, subject to the receipt of professional advice.

Portfolio Structure and Analysis

Portfolio Structure

The broad range of the portfolio is illustrated below, with 51 per cent of the portfolio valuation being held for more than five years, whilst 94 per cent is held at cost or above. 5 per cent of the portfolio value is held in loans and preference shares.

AGE OF INVESTMENTS (%)



VALUE COMPARED TO COST (%)



INVESTMENT INSTRUMENT (%)

Portfolio Analysis

Also included below is a profile of the portfolio by industry sector.

INDUSTRY SECTOR (%)

Investment Review

The movements in the investment portfolio are set out in Table A below:

Table A Investment Portfolio

At 31 December 2024 the investment portfolio was valued at £105.5 million, representing 65.8 per cent of net assets (71.1 per cent at 31 December 2023). Cash, cash equivalents and current asset investments at 31 December 2024 of £53.1 million represent 33.1 per cent of net assets (28.2 per cent at 31 December 2023).

The Portfolio

The portfolio showed steady performance in the period, adding £2.9 million of value on the opening fair value of £96.4 million. The composition of investments continues to show its dynamism, with £15.1 million invested in the period and proceeds of £9.4 million recognised.

Fair value changes

Table B Gain from Investment Portfolio

Of the £3.3 million gain in the year, £0.2 million arose from investments which were realised, including deferred consideration received from investments realised in prior years. Further details can be found in the Chair's Statement and note 7 to the financial statements.

The ongoing portfolio delivered a net value gain of £3.1 million in the year. It is pleasing to see the fair value increases arising across a range of companies, including tech-focused businesses such as Vypr, Summize, AutomatePro, Arcus, Xapien and SharpCloud, as well as legacy companies such as ACC Aviation and Teraview.

Some decreases in value have been seen, with notable reductions for the investments in Matillion, Wooshii and Outpost. The Manager continues to work closely with the companies' management teams to navigate their current challenges.

Other Significant Investment Movements

Investments

During the year ended 31 December 2024, the Company invested £15.1 million across fourteen companies.

Four new companies were added to the portfolio, receiving aggregate investment of £5.7 million; while a further £9.4 million was invested across ten existing portfolio companies. The analysis of these investments is shown in Table C. The case studies on page 24 of the annual report give more information on the investments in Xapien and AutomatePro.

Table C Investments

In January 2025 the Company invested £1.4 million into new investment Stormharvester, an AI analytics platform for wastewater utilities, and in March 2025 the Company invested 2.8 million into portfolio companies DrDoctor and Vypr.

Disposal of Investments

During the year to 31 December 2024, the Company received proceeds from disposals of £9.4 million, a net gain of £0.2 million over the opening carrying value at the beginning of the year, and an overall net gain of £7.3 million over cost. This included the successful realisations of Displayplan and Traveltek. Further details are given in the Chair's statement above.

Table D Disposal of Investments

Further analysis of all investments sold in the year can be found in note 7 to the financial statements.

Investment Portfolio Composition

As at 31 December 2024, the portfolio was valued at £105.5 million, comprising wholly of unquoted investments. An analysis of the movements in the year is shown on page 75 of the annual report.

The portfolio has 31 investments valued above £0.75 million, five more than a year earlier, with the single largest investment, Matillion, representing 12.2 per cent of the net asset value.

The charts on pages 16 and 17 of the annual report show the diversity of the portfolio, split by industry sector, age of investment, investment instrument and the valuation compared to cost.

Treasury Management

Under VCT legislation, it is not possible to deposit funds for longer than seven days, which means that cash deposits must be available on very short notice. The Company takes an active approach to cash management, whilst pursuing its primary aim of capital preservation. This is effected through the use of a pool of money market funds (which can be converted back to cash with immediate notice) and cash deposits held with Tier 1 banking institutions. £2.7 million of income was earned from money market funds and bank deposits during the year. At 31 December 2024, the Company was achieving a weighted average return on liquid assets of 4.5 per cent. This rate had reduced to 4.2 per cent at 28 February 2025.

Valuation Policy

Unquoted investments are valued in accordance with both IFRS 13 'Fair Value Measurement' and International Private Equity and Venture Capital Guidelines (the "IPEV Guidelines").

Initially, at the first quarter-end following investment, investments are valued at the price of the funding round; following this, the valuation switches to a new primary basis for all subsequent periods.

The valuation methodology applied depends upon the facts and circumstances of each individual investment. This may be with reference to revenue multiples, earnings multiples, net assets, discounted cash flows or calibrated from the price of the most recent investment.

The full valuation policy is set out in note 1 on pages 66 and 67 of the annual report.

Table E shows the value of investments within each valuation category as at 31 December 2024.

With continued investment in earlier stage businesses that are investing for growth, the majority of valuations continue to be based on revenue multiples.

Table E Valuation Policy

Responsible Investment and Environmental, Social and Governance ("ESG") Management

The Company seeks to build a broad portfolio of investments in early-stage companies focused on growth with the additional aim of building better businesses that are ultimately more sustainable.

In order to deliver more sustainable businesses, and to meet its commitments under the Principles for Responsible Investment (the "PRI"), the Manager has continued to develop its processes in this area.

The Manager's approach is based on the belief that good businesses:

· Grow our economy

· Improve our society

· Value their people

· Protect the environment

These aims are consistent with the Company's financial because businesses which improve in these areas also strengthen their resilience and value creation potential through their increased attractiveness to customers, employees, suppliers, and eventual future owners and investors.

Responsible Investment Principles

This set of principles guides the Manager's investment process:

> To seek to understand the ESG related impacts and risk factors of the businesses the Company invests in, aiming to enhance positive impacts and to avoid, reduce or minimise any negative impacts where possible, over an investment's lifetime, leaving them overall better businesses;

> To play a positive role in the investor, business and wider communities by promoting good practice in ESG management, and by being transparent in the way that investments are made and how the Manager behaves;

> To increase focus on the challenge of climate change both as it may be affected by our investments, and as it may impact on the Manager's portfolio companies and their resilience to possible climate change scenarios;

> To show leadership by managing the Manager's own business' ESG impacts to the best of its ability; and

> To be a proactive signatory to the PRI and to integrate its principles into the Manager's business practices.

In line with the PRI the Manager has developed processes to help portfolio companies to improve in each of these spheres, by assessing them in terms of creating positive impacts and outcomes and preventing or minimising negative ones.

The Manager has developed and integrated the following ESG management processes:

>Pre-investment Phase:

Structured processes at the pre-investment stage to identify areas of potential ESG improvement and risk as part of the due diligence and pre-investment deliberations. Appropriate data is collected and assessed on each business against ESG criteria at the point of investment as a benchmark against which to evaluate future progress.

>Portfolio Phase:

Based on the data collected at the point of investment, at the start of the portfolio phase, bespoke areas for improvement are agreed with each management team, together with consequent objectives and targets. Improvements are then monitored, measured and recorded against a set of ESG criteria using the Manager's bespoke ESG framework. During the portfolio phase, targets are refreshed and increased focus is placed on any new issue as they become more material in the management of the company and in meeting the expectations of its stakeholders.

>Reporting:

Annual reports are produced using the Manager's ESG framework, recording the ESG KPI performance of each company and providing an overview of progress across the Manager's portfolios.

Investment Companies, such as the Company, are not within scope for reporting under the Task Force on Climate-Related Financial Disclosures (TCFD); and the Company does not use more than 40,000kWh of energy and therefore is not required to report on its energy usage within Streamlined Energy and Carbon Reporting regulations.

>Oversight and Support:

To ensure effective oversight and support, the Manager has established an ESG Committee that meets quarterly to oversee its responsible investment strategy ESG approach. Additionally, in 2024 the Manager has recruited an ESG & Sustainability Manager who works across its portfolio companies to implement ESG initiatives and encourage and share ESG best practice. The support offered includes operating a programme of events and webinars and providing ESG resources to the portfolio focused on key ESG themes, such as environmental management, diversity and inclusion, company culture, and cyber security.

ESG Performance Data and Reporting

ESG KPI data analysis

The Manager has developed its own ESG KPI data collation process, allowing it to monitor year-on-year performance and benchmark across its portfolio. This includes providing its portfolio companies with a bespoke annual Healthcheck report showing their performance across a range of ESG areas. 

2024 ESG KPI Report for Investments held in the British Smaller Companies VCT funds

Growing our economy

> £56 million of R&D investment during 2024

> £108 million of export sales achieved in 2024

> c.600 new jobs were created from date of investment to 2024, representing a 41 per cent increase

Improving our society

> 84 per cent of the portfolio provided employees with cyber-security training

> 66 per cent of portfolio companies had a cyber accreditation or management system in place

> on average 75 per cent of our portfolio companies rate their employees good or above

> 84 per cent of companies were independently chaired in 2024

Valuing our people

> 53 per cent of portfolio companies had mental well-being programmes in place and 66 per cent held regular employee engagement surveys

> 44 per cent of the portfolio are measuring DE&I metrics and have a policy in place

> 44 per cent of companies had female representation at board-level, with 13 per cent having a female CEO/MD

> 53 per cent of businesses had a designated board member with responsibility for improving ESG issues

> 34,000 hours of non-statutory training was given to employees across the portfolio

Protecting our environment

> 44 per cent had environmental policies in place

> 16 per cent formally measure their carbon footprint with 13 per cent formally setting a target and strategy for achieving net zero carbon emissions

> 9 per cent per cent offset all or a defined portion of their carbon emissions

Summary and Outlook

Despite increased geopolitical uncertainty and tariff threats from a change in government in the US, and subdued business confidence in the UK, there has been promising growth from portfolio companies in the year, driven by increases in underlying revenue and market multiples. 

Navigating the macroeconomic headwinds, we have been encouraged by the progress made by the portfolio, with strong rates of revenue growth seen from many companies this year. Where companies are performing strongly, we have taken the opportunity to provide further funding to allow them to continue their positive progress.

Thanks to the support of shareholders the Company remains well funded to both continue to support the portfolio in this way, as well as to invest in exciting fast growing UK businesses.

Eamon Nolan

YFM Private Equity Limited



Portfolio Summary at 31 December 2024

*represents recognised income and proceeds received to date plus the unrealised valuation at 31 December 2024.

Summary of Portfolio Movement







Risk Factors

The Board carries out a regular review of the risk environment in which the Company operates. The emerging and principal risks and uncertainties identified by the Board and techniques used to mitigate these risks are set out in this section.

The Board seeks to mitigate its emerging and principal risks by setting policy, regularly reviewing performance and monitoring progress and compliance. In the mitigation and management of these risks, the Board rigorously applies the principles detailed in section 8: "Audit, Risk and Internal Control" of the AIC Code. Details of the Company's internal controls are contained in the Corporate Governance Internal Control section on pages 47 and 48 of the annual report and further information on exposure to risks, including those associated with financial instruments, can be found in note 16 of the financial statements.

The Board carries out a regular review of the risk environment in which the Company operates, together with changes to the operational environment. The Board also seeks to identify emerging risks which might impact on the Company.

The principal and emerging risks identified by the Board, and how the Board manages the risks are set out below.

Other Matters

Section 172 Statement

This Section 172 Statement should be read in conjunction with the other contents of the Strategic Report, on pages 6 to 36 of the annual report.

Section 172 of the Companies Act 2006 requires that a director must act in the way that they consider, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to:

> The likely consequences of any decision in the long term;

> The interests of the company's employees;

> The need to foster the company's business relationships with suppliers, customers and others;

> The impact of the company's operations on the community and the environment;

> The desirability of the company maintaining a reputation for high standards of business conduct; and

> The need to act fairly as between members of the company.

The Company takes a number of steps to understand the views of investors and other key stakeholders and considers these, along with the matters set out above, in Board discussions and decision making.

Key Stakeholders

As an investment company with no employees, the Company's key stakeholders are its investors, its service providers and its portfolio companies.

Investors

The Board engages and communicates with shareholders in a variety of ways.

The Company encourages shareholders to attend its Annual General Meeting.

Along with British Smaller Companies VCT plc, the Company held an Investor Workshop on 24 June 2024, which was well attended. A further event is scheduled for June 2025.

Maintaining the Company's status as a VCT is critical to meeting the Company's objective to maximise Total Return and provide investors with an attractive long-term tax-free dividend yield. The Company receives regular reports on this issue from the Manager and has taken various steps in the year to ensure that the relevant tests are met.

The Board also aims for investors to continue to have tax efficient opportunities to invest in the Company, and to generate tax-free returns from both capital appreciation and ongoing dividends.

After carefully considering its funding needs, on 17 October 2024 the Company issued a prospectus, alongside British Smaller Companies VCT plc, to raise up to £75 million in aggregate for the 2024/25 tax year.

During the year the Board kept its arrangements for dividends, share buy-backs and the dividend re-investment scheme under constant review. Along with normal dividends totalling 3.00 pence per ordinary share in the year ended 31 December 2024, a special dividend of 1.00 pence per ordinary share was paid in January 2025, following the realisation of the Company's investment in Traveltek in 2024.

To ensure the Company has sufficient distributable reserves to facilitate the above arrangements, the Company called a General Meeting on 12 November 2024 which recommended resolutions relating to the cancellation of the Company's share premium account and capital redemption reserve, and the reduction in the nominal value of the Company's issued share capital. The approved resolutions will create £85.3 million of additional distributable reserves over the next three years. There was no dilution to shareholders interest from the resolutions.

Manager

The Company's most important service provider is its Manager. There is regular contact with the Manager, and members of the Manager's board attend all of the Company's Board meetings. There is also an annual strategy meeting with the Manager, alongside the board of British Smaller Companies VCT plc.

The Manager maintains strong relationships with relevant media publications and a wide range of distributors for the Company's shares, including wealth managers, independent financial advisers and execution-only brokers. RAM Capital acts as a promoter of the Company's shares to smaller distributors.

The Company is a member of the Association of Investment Companies which promotes the interests of investment companies, including VCTs. The Manager is a founder member of the Venture Capital Trust Association, which promotes the interests of VCTs in a variety of ways.

Portfolio Companies

The Company holds minority investments in its portfolio companies and has delegated the management of the portfolio to the Manager. The Manager provides the Board with regular updates on the performance of each portfolio company at least quarterly and the Board is made aware of all major issues.

The Manager has a dedicated Portfolio team to assist the portfolio companies with the challenges that they face as fast-growing companies. The Manager promotes ongoing sustainable growth within the businesses; this often involves improving systems and processes, as well as significant job creation.

Employees

The Company has no employees. The Board is composed of one female non-executive director and two male non-executive directors. For a review of the policies used when appointing directors to the Board of the Company, please refer to the Directors' Remuneration Report.

Environment and Community

The Company seeks to ensure that its business is conducted in a manner that is responsible to the environment. The management and administration of the Company is undertaken by the Manager, YFM Private Equity Limited, which recognises the importance of its environmental responsibilities and is a signatory of the United Nations' Principles for Responsible Investment.

More details of the work that the Manager has achieved in this area are set out below. Its Responsible Investment Policy can be found at www.yfmep.com/who-we-are/our_impact/.

Business Conduct

The Company has a zero tolerance approach to bribery and corruption. The following is a summary of the controls in place:

> The Company conducts all its business in an honest and ethical manner. The Company is committed to acting professionally, fairly and with integrity in all its business dealings and relationships;

> The Company prohibits the offering, the giving, the solicitation or the acceptance of any bribe;

> The Company has communicated its Anti-Bribery & Corruption Policy to the Manager and its other service providers; and

> The Manager has its own Anti-Bribery & Corruption Policy and monitors portfolio companies' compliance with their legal obligations.

Statement on Long-term Viability

The statement on long-term viability on page 39 of the annual report is included in the Strategic Report by reference.

Barbara Anderson

Chair

FINANCIAL STATEMENTS

Statement of Comprehensive Income

For the year ended 31 December 2024

The accompanying notes on pages 65 to 87 of the annual report are an integral part of the financial statements.

The Total column of this statement represents the Company's Statement of Comprehensive Income, prepared in accordance with UK adopted international accounting standards. The supplementary Revenue and Capital columns are prepared under the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (issued in July 2022 - "SORP") published by the AIC.

Balance Sheet

At 31 December 2024

The accompanying notes on pages 65 to 87 of the annual report are an integral part of the financial statements.

The financial statements were approved and authorised for issue by the Board of Directors and were signed on its behalf on 18 March 2025.

Barbara Anderson

Chair

Statement of Changes in Equity

For the year ended 31 December 2024

The accompanying notes on pages 65 to 87 of the annual report are an integral part of the financial statements.

Reserves available for distribution

Under the Companies Act 2006 the capital reserve and the revenue reserve are distributable reserves. The table below shows amounts that are available for distribution.

* Other reserves include the merger reserve and the other reserve, which are non-distributable. The other reserve was created upon the exercise of warrants, and the merger reserve was created on the merger with British Smaller Technologies Company VCT plc.

** Issue costs include both fundraising costs and costs incurred from the Company's DRIS.

*** Following the circulation of the Annual Report to shareholders.

The merger reserve arose following the Company's acquisition of the assets and liabilities of British Smaller Technology Companies VCT plc in 2005. The reserve accounted for the difference between the nominal and fair value of shares issued as consideration, in accordance with section 131 of the Companies Act 1985 and the provisions of the Companies Act 2006 for merger relief. As the majority of the assets and liabilities acquired in the merger have subsequently been realised, £5,308,000 of the merger reserve was transferred to distributable reserves during the year. The remaining merger reserve will become distributable once the remaining assets acquired are realised.

The capital reserve and revenue reserve are both distributable reserves. The reserves total £123,921,000, representing an increase of £84,565,000 during the year. The directors also take into account the level of the investment holding gains and losses reserve and the future requirements of the Company when determining the level of dividend payments.

Of the potentially distributable reserves of £123,921,000 shown above, £2,451,000 relates to income/proceeds not yet distributable and £89,580,000 relates to cancelled share premium and the reduction in the nominal value of share capital which will become distributable from the dates shown in the table below.

* includes £54,230,000 cancelled in 2024 and £20,193,000 cancelled in 2022

** excludes £15,792,000 reduction in nominal value of share capital already distributable

Statement of Cash Flows

For the year ended 31 December 2024

* Issue costs include both fundraising costs and expenses incurred from the Company's DRIS

Cash and cash equivalents comprise:

Reconciliation of Profit before Taxation to Net Cash Outflow from Operating Activities

* Includes net income from

** Includes accrued income and other assets disclosed in Note 7 - Financial Assets at Fair Value through Profit or Loss - Investments.

The accompanying notes on pages 65 to 87 of the annual report are an integral part of the financial statements.

Notes to the Financial Statements

1. Principal Accounting Policies

Basis of Preparation

The accounts have been prepared on a going concern basis as set out in the Directors Report on page 38 of the annual report and in accordance with UK adopted international accounting standards.

The directors have carefully considered the issue of going concern in view of the Company's activities and associated risks. The Company has a well-diversified portfolio with businesses in a variety of sectors, many of which are well funded. Some portfolio companies may require additional funding in the near- to medium-term; the Company is well placed to provide this, where appropriate.

The Company has a significant level of liquidity, which will be further enhanced by the current fundraising. In addition, the Board has control over, and can flex as appropriate, the Company's major outgoings, which predominantly comprise investments, dividends and share buy-backs.

The directors have also assessed whether material uncertainties exist and their potential impact on the Company's ability to continue as a going concern; they have concluded that no such material uncertainties exist.

Taking all of the above into consideration, the directors are satisfied that the Company has sufficient resources to meet its obligations for at least 12 months from the date of this report and therefore believe that it is appropriate to continue to apply the going concern basis of accounting in preparing the financial statements.

The financial statements have been prepared under the historical cost basis as modified by the measurement of investments at fair value through profit or loss.

The accounts have been prepared in compliance with the recommendations set out in the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' issued by the Association of Investment Companies (issued in July 2022 - the "SORP") to the extent that they do not conflict with UK adopted international accounting standards.

The financial statements are prepared in accordance with UK adopted international accounting standards (International Financial Reporting Standards ("IFRS") and International Accounting Standards ("IAS")) and interpretations in force at the reporting date. From 1 January 2023 IAS 1 has been amended introducing the concept Material Accounting Policy Information. The Company has performed a review of its existing accounting policies and updated where relevant. Other new standards coming into force during the year and future standards that come into effect after the year-end have not had a material impact on these financial statements.

The Company has carried out an assessment of accounting standards, amendments and interpretations that have been issued by the International Accounting Standards Board and that are effective for the current reporting period. The Company has determined that the transitional effects of the standards do not have a material impact.

The financial statements are presented in sterling and all values are rounded to the nearest thousand (£000), except where stated.

Financial Assets held at Fair Value through Profit or Loss - Investments

Financial assets designated as at fair value through profit or loss ("FVPL") at inception are those that are managed and whose performance is evaluated on a fair value basis, in accordance with the documented investment strategy of the Company. Information about these financial assets is provided internally on a fair value basis to the Company's key management. The Company's investment strategy is to invest cash resources in venture capital investments as part of the Company's long-term capital growth strategy. Consequently, all investments are classified as held at fair value through profit or loss.

All investments are measured at fair value on the whole unit of account basis with gains and losses arising from changes in fair value being included in the Statement of Comprehensive Income as gains or losses on investments held at fair value. Accrued income on loans/preference shares that is rolled to exit and is not yet past due, forms part of the investment's fair value.

Transaction costs on purchases are expensed immediately through profit or loss.

Although the Company holds more than 20 per cent of the equity of certain companies, it is considered that the investments are held as part of the investment portfolio, and their value to the Company lies in their marketable value as part of that portfolio. These investments are therefore not accounted for using equity accounting, as permitted by IAS 28 'Investments in associates' and IFRS 11 'Joint arrangements' which give exemptions from equity accounting for venture capital organisations.

Under IFRS 10 "Consolidated Financial Statements", control is presumed to exist when the Company has power over an investee (whether or not used in practice); exposure or rights; to variable returns from that investee, and ability to use that power to affect the reporting entities returns from the investees. The Company does not hold more than 50 per cent of the equity of any of the companies within the portfolio. The Company does not control any of the companies held as part of the investment portfolio. It is not considered that any of the holdings represent investments in subsidiary undertakings.

Due to the above factors, the Company has applied the IFRS 10 investment entity consolidation exemption and has not prepared consolidated financial statements.

Valuation of Investments

Unquoted investments are valued in accordance with IFRS 13 "Fair Value Measurement" and using the International Private Equity and Venture Capital Valuation Guidelines (the "IPEV Guidelines"). A detailed explanation of the valuation policies of the Company is included below.

Initial Measurement

The best estimate of the initial fair value of an unquoted investment is the cost of the investment. Unless there are indications that this is inappropriate, an unquoted investment will be held at this value within the first three months of investment.

Subsequent Measurement

Based on the IPEV Guidelines we have identified six of the most widely used valuation methodologies for unquoted investments. The IPEV Guidelines advocate that the best valuation methodologies are those that draw on external, objective market-based data in order to derive a fair value.

Unquoted Investments

> Revenue multiples. An appropriate multiple, given the risk profile and revenue growth prospects of the underlying company, is applied to the revenue of the company. The multiple is adjusted to reflect any risk associated with lack of marketability and to take account of the differences between the investee company and the benchmark company or companies used to derive the multiple.

> Earnings multiple. An appropriate multiple, given the risk profile and earnings growth prospects of the underlying company, is applied to the maintainable earnings of the company. The multiple is adjusted to reflect any risk associated with lack of marketability and to take account of the differences between the investee company and the benchmark company or companies used to derive the multiple.

> Net assets. The value of the business is derived by using appropriate measures to value the assets and liabilities of the investee company.

> Discounted cash flows of the underlying business. The present value of the underlying business is derived by using reasonable assumptions and estimations of expected future cash flows and the terminal value, and discounted by applying the appropriate risk-adjusted rate that quantifies the risk inherent in the company.

> Discounted cash flows from the investment. Under this method, the discounted cash flow concept is applied to the expected cash flows from the investment itself rather than the underlying business as a whole.

> Price of recent investment. This may represent the most appropriate basis where a significant amount of new investment has been made by an independent third party. This is adjusted, if necessary, for factors relevant to the background of the specific investment such as preference rights and will be benchmarked against other valuation techniques. In line with the IPEV Guidelines the price of recent investment will usually only be used for the initial period following the round and after this an alternative basis will be found.

Due to the significant subjectivity involved, discounted cash flows are only likely to be reliable as the main basis of estimating fair value in limited situations. Their main use is to support valuations derived using other methodologies and for assessing reductions in fair value.

One of the valuation methods described above is used to derive the gross attributable enterprise value of the company, after which adjustments are made to reflect specific circumstances. This value is then apportioned appropriately to reflect the respective debt and equity instruments in the event of a sale at that level at the reporting date.

Income

Dividends and interest are received from financial assets measured at fair value through profit and loss and are recognised on the same basis in the Statement of Comprehensive Income. This includes interest and preference dividends rolled up and/or payable at redemption. Interest income is also received on cash, cash equivalents and current asset investments. Dividend income from unquoted equity shares is recognised at the time when the right to the income is established.

Expenses

Expenses are accounted for on an accruals basis. Expenses are charged through the Revenue column of the Statement of Comprehensive Income, except for the Manager's fee and incentive fees. Of the Manager's fees 75 per cent are allocated to the Capital column of the Statement of Comprehensive Income, to the extent that these relate to an enhancement in the value of the investments and in line with the Board's expectation that over the long term 75 per cent of the Company's investment returns will be in the form of capital gains. The incentive fee payable to the Manager (as set out in note 3) is charged wholly through the Capital column.

Tax relief is allocated to the Capital Reserve using a marginal basis.

Incentive Fee

The incentive fee is accounted for on an accruals basis. As further detailed in note 3, the incentive fee is calculated as 20 per cent of the amount by which the cumulative dividends per ordinary share paid as at the last business day in December in any year, plus the average of the Company's middle market price per ordinary share on the five dealing days prior to that day, exceeds the Hurdle (as defined in note 3), multiplied by the number of ordinary shares issued and the ordinary shares under option. At the end of each reporting period, an accrual is recognised based upon the cumulative dividends per ordinary share paid to the reporting date, plus the average of the Company's middle market price per ordinary share on the five dealing days prior to the reporting date. The incentive fee is charged wholly through the Capital column.

Cash, Cash Equivalents and Current Asset Investments

Cash at bank comprises cash at hand and bank deposits with an original maturity of less than three months, readily convertible to a known amount of cash and subject to an insignificant risk of changes in value.

Current asset investments comprise money market funds.

Cash and cash equivalents include cash at hand, money market funds and bank deposits repayable on up to three months' notice, as these meet the definition in IAS 7 'Statement of cash flows' of a short-term highly liquid investment that is readily convertible into known amounts of cash and subject to insignificant risk of change in value.

Cash and cash equivalents are valued at amortised cost, which equates to fair value.

Cash flows classified as "operating activities" for the purposes of the Statement of Cash Flows are those arising from the Revenue column of the Statement of Comprehensive Income, together with the items in the Capital column that do not fall to be easily classified under the headings for "investing activities" given by IAS 7 'Statement of cash flows', being management and incentive fees payable to the Manager. The capital cash flows relating to the acquisition and disposal of investments are presented under "investing activities" in the Statement of Cash Flows in line with both the requirements of IAS 7 and the positioning given to these headings by general practice in the industry.

Share Capital and Reserves

Share Capital

This reserve contains the nominal value of all shares allotted under offers for subscription.

Share Premium Account

This reserve contains the excess of gross proceeds less issue costs over the nominal value of shares allotted under offers for subscription, to the extent that it has not been cancelled.

Capital Reserve

The following are included within this reserve:

> Gains and losses on realisation of investments;

> Realised losses upon permanent diminution in value of investments;

> Capital income from investments;

> 75 per cent of the Manager's fee expense, together with the related taxation effect to this reserve in accordance with the policy on expenses in note 1 of the financial statements;

> Incentive fee payable to the Manager;

> Capital dividends paid to shareholders;

> Applicable share issue costs;

> Transfers from the merger reserve;

> Purchase and holding of the Company's own shares; and

> Credits arising from the cancellation of any share premium account or changes in the nominal value of share capital.

Investment Holding Gains and Losses Reserve

Increases and decreases in the valuation of investments held at the year-end are accounted for in this reserve, except to the extent that the diminution is deemed permanent.

Revenue Reserve

This reserve includes all revenue income from investments along with any costs associated with the running of the Company - less 75 per cent of the Manager's fee expense as detailed in the Capital Reserve above.

Taxation

Due to the Company's status as a Venture Capital Trust and the continued intention to meet the conditions required to comply with Chapter 3 Part 6 of the Income Tax Act 2007, no provision for taxation is required in respect of any realised or unrealised appreciation of the Company's investments which arises. Deferred tax is recognised on all temporary differences that have originated, but not reversed, by the balance sheet date.

Deferred tax assets are only recognised to the extent that they are regarded as recoverable. Deferred tax is calculated at the tax rates that are expected to apply when the asset is realised. Deferred tax assets and liabilities are not discounted.

Dividends Payable

Dividends payable are recognised only when an obligation exists. Interim and special dividends are recognised when paid and final dividends are recognised when approved by shareholders in general meetings.

Segmental Reporting

In accordance with IFRS 8 'Operating Segments' and the criteria for aggregating reportable segments, segmental reporting has been determined by the directors based upon the reports reviewed by the Board. The directors are of the opinion that the Company has engaged in a single operating segment - investing in equity and debt securities within the United Kingdom - and therefore no reportable segmental analysis is provided.

Critical Accounting Estimates and Judgements

The preparation of financial statements in conformity with generally accepted accounting practice requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management's best knowledge of the amount, event or actions, actual results may ultimately differ from those estimates. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are those used to determine the fair value of investments at fair value through profit or loss, as disclosed in note 7 to the financial statements.

The fair value of investments at fair value through profit or loss is determined by using valuation techniques. As explained above, the Board uses its judgement to select from a variety of methods and makes assumptions that are mainly based on market conditions at each balance sheet date.

The Board uses its judgement to select the appropriate method for determining the fair value of investments through profit or loss.

2. Income

3. Administrative Expenses